AT&T has refined its pitch to Wall Street on the rationale for owning WarnerMedia.
As it approaches the third anniversary of completing its $85.4 billion acquisition of Time Warner, the telco giant held an Investor Day presentation Friday morning that was long on talk of “software-based entertainment” and global subscriber predictions for the next four years. But there was little discussion of the linear Turner networks or the pathbreaking advanced advertising deals that were once billed as driving growth for TNT, TBS, CNN et al as well as AT&T’s DirecTV.
Today, AT&T is in the process of unloading a 30% stake in DirecTV to help get the satcaster’s slumping performance off of AT&T’s books. There was not a word about Xander, the targeted advertising sales effort that AT&T assembled after the Time Warner acquisition agreement was struck in 2016.
Instead, AT&T CEO John Stankey repeated the mantra that the areas of investment focus are “5G, fiber and HBO Max.” WarnerMedia chief Jason Kilar offered a significant update to HBO and HBO Max’s global subscriber target for 2025 — 120 million to 150 million paying customers worldwide — and confirmed plans to launch an ad-supported lower-cost edition of HBO Max in the U.S. in June. The service will also roll out in more than 60 countries this year.
AT&T executives were pressed for details on how its wireless and high-speed data services were benefitting from HBO Max and vice versa.
“We made a conscious decision that building a software-driven forward-leaning platform and getting to scale on it was our No. 1 priority,” Stankey told analysts. Jeff McElfresh, CEO of AT&T Communications, asserted that the stickiness of HBO Max content was helping reduce churn for wireless customers. About 25% of HBO Max subscribers have an AT&T wireless or broadband service bundle as well.
The pivot away from the original business case for the union of AT&T and Time Warner is no surprise, given how dramatically the global TV landscape has changed since then-AT&T CEO Randall Stephenson reached the handshake agreement with then-Time Warner chief Jeff Bewkes in October 2016.
Stankey and Kilar dropped numerous hints during the two-hour presentation, which included an hour of Q&A with analysts, that WarnerMedia has more direct-to-consumer services in the hopper. The comments made it sound like some may be bolted onto to the HBO Max platform while others may be standalone. There was no mention of Turner’s linear operations until analysts pressed the point about whether linear feeds of the legacy cablers would be popping up on HBO Max any time soon.
Stankey made reference to the struggle that the HBO and WarnerMedia teams had in 2019 and last year to adjust existing MVPD contracts to allow for the HBO Max debut in late May. The short answer is “no” in the short term. But with that silence, AT&T and WarnerMedia brass spoke volumes about how they feel about the long-term prospects for Turner and HBO’s linear operations.
“The restructuring of the traditional bundle still has a few innings to go here and will probably be choppy as it goes,” Stankey said. “That’s not a today or this week kind of decision.”
Kilar made his name in the industry as the streaming visionary who built an elegant interface and user experience for Hulu in its formative years. But he couldn’t deny the appeal of old-fashioned pay TV and its near 50% profit margins. He noted that 85 million U.S. households pay for some form of MVPD service.
“The margins are incredibly attractive — some of the finest I’ve seen in my career,” Kilar said of the Turner cablers.
What was left unsaid was the fact that that linear channels are seen by Wall Street as melting ice blocks. They’re big revenue and cash flow generators now, but the growth trajectory is seemingly only down, it’s just a matter of how fast. For now, AT&T and its rivals seem intent on using the steady if shrinking cash flow from the old-guard cable business to help pay for the investment in global streaming platforms.
“We proudly invest in those (Turner) businesses because they’re good businesses,” Kilar said. “They generate a lot of cash flow that allows us to invest in HBO Max and interactive and other direct-to-consumer businesses as well.”
(Pictured: John Stankey)